Commodity wrap: rate cut hopes fuel gold, silver rally; oil prices climb on geopolitical risk
Gold prices rose on Friday after the release of the US inflation data, which ignited fresh hopes for an interest rate cut by the Federal Reserve next week.
Silver surged more than 3%, tracking gains in gold as a rate cut next week seemed imminent. Lower rates boost demand for unyielding assets such as gold and silver.
Meanwhile, oil prices also rose sharply amid stalled peace talks between Russia and Ukraine.
Gold climbs
Gold prices climbed on hopes of an interest rate cut by the US Fed next week, with prices nearing $4,300 per ounce on COMEX.
At the time of writing, the COMEX gold contract was at $4,277.20 per ounce, up 0.7% from the previous close. Silver prices were 3.2% higher at $59.390 per ounce, nearing the record high touched earlier this week.
The US core Personal Consumption Expenditures (PCE) price index for September, which omits the more volatile food and energy sectors, increased by 0.2% on a monthly basis.
While this monthly rise met the Dow Jones consensus, the annual rate of 2.8% was slightly lower than anticipated, falling short by 0.1 percentage point.
The annual inflation rate, as measured by the headline PCE price index, was 2.8%, matching expectations. This figure followed a 0.3% increase for the month, according to the US Bureau of Economic Analysis.
The Federal Reserve utilises the PCE price index as its primary tool for inflation policy.
Although both the headline and core measures are monitored, the core reading is generally favored by officials as a more reliable indicator of long-term inflation trends.
The government shutdown halted all data collection and economic reports, delaying the report by several weeks.
“The daily MACD continues to hold above the neutral level and has certainly fallen back from the overbought levels seen at the all-time highs from back in October,” said David Morrison, senior market analyst at Trade Nation.
Silver volatile
Silver prices recovered all of their losses from Thursday and were eyeing the record high on COMEX.
At the time of writing, the March COMEX contract was just over 100 cents shy of its record high.
This week’s support has maintained a closing price near $57, which has been surpassed comfortably on Friday.
According to a FXstreet report, silver’s meteoric rise has been fuelled by physical demand from India, rather than speculative trading.
India is now a key driver of the surging demand for silver.
In October, the country imported approximately 60 million ounces of silver, a fourfold increase compared to the previous year, despite silver prices approaching local currency record highs, according to the report.
The report further stated that demand for silver is so high in India that some shipments have been flown into the country to satisfy the growing hunger.
Oil rises
Despite a boost from the stalled Ukraine peace talks, oil prices remained stable on Friday, as the potential for a supply surplus tempered any significant gains.
Brent remained largely stable for the week, while WTI was set for a gain of approximately 1.7%, achieving its second consecutive weekly increase.
Oil prices were also supported by escalating geopolitical tensions.
Late last week, President Donald Trump indicated that the US would soon begin actions on the ground to halt Venezuelan drug traffickers, leading markets to anticipate a potential US military intervention in Venezuela.
According to Rystad Energy, such a military move could jeopardise Venezuela’s daily crude oil production of 1.1 million barrels, most of which is exported to China.
Furthermore, the lack of a significant breakthrough during US talks in Moscow this week regarding the war in Ukraine—which might have included a deal to reintroduce Russian oil to the market—also contributed to the rise in prices.
“The market fundamentals for oil have changed dramatically over the past five and a half years. Supply is plentiful, while global demand growth continues to weaken,” Trade Nation’s Morrison said.
In the very short-term, this is helping to keep front-month WTI stuck below $60. Although it’s difficult to see where prices go next.
Since the beginning of October, the price of a barrel of Brent crude oil has fluctuated mainly between $60 and $65.
“This is unlikely to change in the coming week, as factors supporting and weighing on prices are likely to balance each other out,” said Barbara Lambrecht, commodity analyst at Commerzbank AG.
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